How China\'s economic slowdown can adversely impact India

REPORT - 12/DEC/2014: Roughly $4.2 billion and counting. That\'s the size of the deficit that India faces, in its trade with China as of October this year. That trade deficit has soared by 26 per cent over the same month last year, as exports from India to China have effectively dropped off a cliff. Exports in September and October were down by a third from a year earlier, while imports by India from China are still growing. Engineering exports alone to India\'s neighbour have fallen by 50 per cent, according to the Engineering Export Promotion Council (EEPC), an umbrella body of engineering exporters.
\"While there is a contention that China\'s slowdown may not pinch us....it is clearly doing so as it also happens to be one of our main markets for exports,\" says Anupam Shah, chairman of EEPC India. The India-China relationship goes beyond trade in goods. Some 24 per cent of sales in volume terms by Tata MotorsBSE 0.21 % owned-Jaguar Land Rover ( JLR), for instance, were from China in 2013-14. Just a couple of months ago, JLR inaugurated its first overseas factory in China with an investment of over $1.7 billion.
But in macroeconomic terms, what matters is the trade in goods and services between the two economies. If a Chinese slowdown is news for the world economy, it is major news for the Indian economy. India-China trade accounted for about 9 per cent of India\'s total trade in goods so far this year. But that trade deficit with China accounted for about a third of India\'s overall trade deficit between April and October this year.

Bad Timing
As the first chart shows, by the standards of most other countries, including India, China is still growing strongly, at over 7 per cent. Yet that growth is down from 9 per cent earlier and the effects of slowdown have rippled through the world economy.
uarterly growth rates in %
If engineering exports have dipped sharply, other major commodity exports from India to China have hardly been left untouched. Cotton accounted for a quarter of all Indian exports to China in 2013-14, and 60 per cent of all cotton exported goes to China. A recent report by CARE Ratings forecasts that Indian cotton exports to China will fall from 11 million bales in 2013-14, to 6-7 million bales in 2014-15. A major reason is a new cotton import policy introduced by the China, under which cotton import quotas have been slashed, to boost demand for domestic cotton.